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Equity is one of the most powerful talent tools available to a startup — and one of the most frequently misunderstood. This policy explains the Company's equity arrangements in language every employee can understand.
Covers: what employees have been granted (options vs shares, the exercise price, vesting, the cliff), monthly vesting post-cliff, what happens on departure (good leaver, bad leaver, retirement), liquidity event scenarios (acquisition, IPO, secondary sale), and a five-jurisdiction tax treatment flag covering UK EMI (no income tax at exercise, CGT at disposal), IE KEEP (CGT only), US ISO/NSO (AMT and ordinary income implications), Canada (employment benefit deduction), and AU ESS start-up concessions.
FAQS
Q What is the difference between an option and a share?
An option gives the holder the right to buy shares at a fixed price in the future — but does not convey ownership until it is exercised. A share is actual ownership. Most startup programs use options rather than shares because they defer ownership (and the associated tax event) until exercise, which typically coincides with a liquidity event when cash to cover any tax is available. This policy explains both instruments in plain language that any employee can understand.
Q What does the four-year vesting schedule with one-year cliff mean?
Four-year vesting: options become exercisable gradually over 4 years. One-year cliff: no options vest in the first year. On the first anniversary of the grant (the cliff), 25% of the total grant vests in one event. After the cliff, the remaining 75% vests monthly over the following 36 months — 1/48th of the total grant per month. An employee who leaves before the cliff receives nothing. This protects the company from granting equity to employees who leave quickly.
Q What happens to options when someone leaves?
Good leavers (resignation in good standing, redundancy, retirement, disability, death) typically retain vested options and have a window (commonly 90 days) to exercise them; unvested options lapse. Bad leavers (dismissed for gross misconduct, breach of restrictive covenants) may lose some or all vested options at the Board's discretion. The policy covers good leaver, bad leaver, and retirement scenarios and directs employees to their grant agreement for the specific terms applicable to them.
Q When is equity taxed?
This varies significantly by jurisdiction and scheme. UK EMI: no income tax at exercise of qualifying options (granted at or above market value); CGT on disposal. Irish KEEP: no income tax, PRSI, or USC at exercise; CGT on disposal. US ISO: no income tax at exercise for qualifying options (AMT may apply); CGT on sale. US NSO: ordinary income tax at exercise. Canada: employment benefit taxed on exercise (with deduction where available). Australia ESS start-up concessions: tax deferred until disposal of shares. Independent tax advice is always recommended before exercising.
Equity is one of the most powerful talent tools available to a startup — and one of the most frequently misunderstood. This policy explains the Company's equity arrangements in language every employee can understand.
Covers: what employees have been granted (options vs shares, the exercise price, vesting, the cliff), monthly vesting post-cliff, what happens on departure (good leaver, bad leaver, retirement), liquidity event scenarios (acquisition, IPO, secondary sale), and a five-jurisdiction tax treatment flag covering UK EMI (no income tax at exercise, CGT at disposal), IE KEEP (CGT only), US ISO/NSO (AMT and ordinary income implications), Canada (employment benefit deduction), and AU ESS start-up concessions.
FAQS
Q What is the difference between an option and a share?
An option gives the holder the right to buy shares at a fixed price in the future — but does not convey ownership until it is exercised. A share is actual ownership. Most startup programs use options rather than shares because they defer ownership (and the associated tax event) until exercise, which typically coincides with a liquidity event when cash to cover any tax is available. This policy explains both instruments in plain language that any employee can understand.
Q What does the four-year vesting schedule with one-year cliff mean?
Four-year vesting: options become exercisable gradually over 4 years. One-year cliff: no options vest in the first year. On the first anniversary of the grant (the cliff), 25% of the total grant vests in one event. After the cliff, the remaining 75% vests monthly over the following 36 months — 1/48th of the total grant per month. An employee who leaves before the cliff receives nothing. This protects the company from granting equity to employees who leave quickly.
Q What happens to options when someone leaves?
Good leavers (resignation in good standing, redundancy, retirement, disability, death) typically retain vested options and have a window (commonly 90 days) to exercise them; unvested options lapse. Bad leavers (dismissed for gross misconduct, breach of restrictive covenants) may lose some or all vested options at the Board's discretion. The policy covers good leaver, bad leaver, and retirement scenarios and directs employees to their grant agreement for the specific terms applicable to them.
Q When is equity taxed?
This varies significantly by jurisdiction and scheme. UK EMI: no income tax at exercise of qualifying options (granted at or above market value); CGT on disposal. Irish KEEP: no income tax, PRSI, or USC at exercise; CGT on disposal. US ISO: no income tax at exercise for qualifying options (AMT may apply); CGT on sale. US NSO: ordinary income tax at exercise. Canada: employment benefit taxed on exercise (with deduction where available). Australia ESS start-up concessions: tax deferred until disposal of shares. Independent tax advice is always recommended before exercising.
